PsychTech

There’s a certain feeling that most people have experienced in relation to their work. It usually happens right when they get promoted, switch to a career or job in an entirely new industry, or even accomplish a task. It’s that feeling like you’re a fraud and you’ll be exposed to everyone around you. That feeling is what is commonly known as Impostor Syndrome.

With Impostor Syndrome, people tend to have doubts about their accomplishments and feel like everything they’ve done is a result of luck. It comes with a plate of symptoms like anxiety, depression, and stress and can even be classified into one of five different subgroups of the syndrome. It happens to be a pretty common feeling, with about 70% of people feeling it at one point or another in their lives. Although this happens to the majority of the population, it is especially common in the tech world among women and minorities. You can feel it based on the demographics alone where white males dominate the scene. This, along with the false lives that people see on social media, can easily cause feelings associated with Impostor Syndrome to trigger.

In the startup world, Impostor Syndrome runs rampant, because small companies just starting out have the most risk and uncertainty tied to them. This is true for early employees, and is especially prevalent with the founder. Although founders may never show feelings of anxiety or stress, they may question themselves from time to time. It’s only natural, as they are the ones who carry the most risk of the startup flaming out and not coming to fruition as they would have hoped for. These feelings only serve to limit the performance of the company and the founder, which may in fact cause the entire situation to become a self-fulfilling prophecy if the business or its products don’t pan out.

The most helpful takeaway in dealing with Impostor Syndrome is that nobody is alone in this. Even well-known figures such as Sheryl Sandberg and Serena Williams have experienced it at one point or another. Some methods of overcoming the feeling is to simply divert your focus away from social media and onto yourself, understand that there are others like you out there, and acknowledge the fact that you are where you are because people thought you were competent enough to accomplish something. In the tech world and with founders of startups, that is especially true. It’s okay to make mistakes, fail at achieving excessively ambitious goals, and not know everything. Once this is accepted by founders, they can focus more on making their startup successful, which isn’t something an impostor can exactly do.

As startups grow over time, founders eventually require additional capital to continue scaling and meeting customer demands. To acquire this capital, founders pitch their business to a few types of investors: angel investors, venture capitalists, and strategic investors. The differences among the various groups of investors are rooted mainly in size and intent.

An angel investor is a party of one who exchanges capital for a stake in the company, just like the other groups of investors. However, the amount of capital they can provide is usually limited compared to that of venture capitalists and strategic investors, which is why they normally invest in the seed round and not in any of the series funding rounds. A venture capitalist works for a firm that contains other partners (general and limited) and can provide significantly more capital than an angel investor can. They also source for deals anywhere from the seed round to Stage A and beyond. With both of these groups, their main intent is to lend capital and resources to a promising startup with the hopes of seeing a significant return on their investment.

Strategic investors, however, are cut from a different cloth. They represent a big company or institution, which means they can throw wads of capital without blinking an eye. In addition to capital, a strategic investor can also allocate necessary resources (market information, powerful connections, vast amounts of experience) to founders to help fulfill any gaps between where the startup is now and where it needs to be, much like venture capitalists can. Because strategic investors come from big name corporations (Google, Amazon, Microsoft, etc.), successfully investing with them can open doors not previously seen by founders.

However, there’s a reason they’re called “strategic” investors. As tempting as it sounds to get in bed with a strategic investor, there are always two sides of the coin to be aware of. Firstly, having a strategic investor involved instills a sense of confidence. It demonstrates validation to the outside world, which causes people to take notice. It also becomes easier for founders to raise additional capital if they have a big name backing them up. Because strategic investors are part of an enormous corporation, they have access to resources and distribution channels that startups can only dream of. For founders concerned about the back and forth of valuation and term sheets, strategic investors are willing to accept a higher valuation for the same equity. This can be both good and bad.

With all of their advantages, strategic investors seem like a home run to invest with. So why caution? Because there are strings attached. The first thing to keep in mind is that these investors are part of a larger company, one with many moving parts and different priorities. There are times where the startup’s goals, both short-term and long-term, don’t align with those of the strategic investor, and this can certainly cause friction. The startup may prioritize growing the business by increasing the customer base and expanding market share, but perhaps the strategic investor is simply interested in getting access to the tech instead and waiting for the right stage at which the startup can be bought.

Another item of note is the idea that doing this kind of deal may inhibit founders from talking to competitors associated with the strategic investor. If a founder decides to raise additional capital or looks to sell, being backed by a strategic investor likely prevents the startup from being sold at a high price to a competitor or allowing for additional capital from a competitor. In addition to this, there may be a Right of First Refusal (ROFR) clause in the agreement between the two parties. Essentially, if a company looks to buy the startup, the strategic investor has first pick in whether to buy the startup first or not. This is bad for multiple reasons, depending on what their answer is. If they look at the numbers and decide to pass, the startup can be seen as damaged goods to the outside world. If they do decide to buy, it will likely be at a lower price than what can be had in the open market. Either way, nothing good comes out of it.

It’s okay for founders to receive capital from strategic investors, as long as they understand what this agreement entails. Like most other things, there is the good and there is the bad. If they do proceed, it’s best to bring them in a later round and with a group of other investors. In the end, if strategic investors are the only option to raise capital, founders may be better off just selling the company to them.

The journey of a startup from an idea to a full-blown company is always interesting to watch. The multitude of factors involved in this journey, ranging from the industry to the plan of execution and raising capital to exit strategy, explains why only 10% of startups make it through from one end to the other. It takes certain qualities in a founder and the team to successfully navigate through this treacherously rewarding odyssey, including antifragility, malleability, and the ability to hone a growth mindset. This is definitely not a viable avenue for everyone, but for those founders who can endure the highest of ups and the lowest of downs, the journey they go through is usually split into different stages. It helps to know which stage the founder is in so that appropriate goals are created and the right KPIs are used to benchmark against those goals.

Stage 1: Creating and Validating the Idea

All startups originate as an idea. That’s the easiest part of the whole journey. This idea, however, needs brutal and incessant nurturing; to make it come to life, it needs to be backed by enough research to significantly reduce any qualms that may come up. What this equates to is endless amounts of googling, asking your target user demographics the right questions, and analyzing the competition and industry (if either of those exist). Getting in touch with industry experts also helps here. Validating the idea is a critical step in ensuring that founders aren’t misguided in their thinking.

Stage 2: Bringing the Idea to Life

Once the idea is validated and there’s more than enough research behind it to suggest potential, it’s time to build the product or service. This is the first of many tests a founder will have to go through – how to translate the idea from fiction to reality. It is also at this stage (or the previous) where founders solidify their business model and mission and perhaps find another partner or group of people to work with. The product/service doesn’t have to be a complete and perfect solution, nor should it be. The goal here is to create a Minimum Viable Product, where enough of the product is created so that as much feedback from potential customers can be gained with as little effort as possible. If future plans include raising capital, most investors won’t even bother to schedule a meeting unless there’s a viable working solution at hand (and even then they’ll be reluctant due to lack of numbers). If a founder is running into trouble here, either due to shifting demands or patterns seen in customer feedback, this is also a great time to pivot the product or strategy to continue finding that product/market fit. It’s always better to shift early on to avoid going down a rabbit hole.

Stage 3: Gaining Traction and Feedback

At this point, a working MVP or refined product has been established. The next step is to start gaining customers. One mistake people start to make at this stage is prioritizing profits over people. That’s how a company goes down the drain. When the product is created, it’s likely that financial capital was used to make it happen, so startups usually begin in the red. That’s perfectly okay, as long as a long-term plan has been laid out on how to realize profits down the road. During this stage, growing the customer base should take precedent over growing profits. That isn’t to say that revenue should take a back seat, which it absolutely shouldn’t. But if teams are worrying more about how to get to green than about how to get to customers, there’s an issue. Teams here have two actions items: do whatever it takes to acquire customers and get as much feedback from those customers as possible. By acquiring feedback, teams get valuable data about how to refine the product to meet customer needs. Meeting their needs leads to higher traction and in turn a growing customer base, one that can continue to provide feedback. It’s a win-win cycle.

Stage 4: Continuing Growth and Refinement

Making it to this stage is a huge accomplishment. Product-market fit has been realized, the customer base is rapidly growing, and the product is drastically improving based on loads of feedback data. KPI benchmarks are surpassed quarter after quarter. But now is not the time to let up; in fact, startups need to press the gas even harder. If the industry the startup is in wasn’t aware of its presence before, it sure is now. The competition is heating up and is out to crush any momentum that was stolen from them. Startups need to continue doing what they’ve been doing, but at an even more aggressive pace. Find ways to drastically improve market share. This can include things like raising rounds of capital, hiring more people, or pushing out new products that differ from what’s currently in the market. Continue analyzing customer feedback and look for ways to streamline processes within the organization. Evaluate all KPIs and identify any gaps that the organization is blinded to. Any slight edge will go a long way.

Stage 5: Scaling and Expanding

This stage presents a lot of good problems most founders would love to have. How does one scale as quickly as possible and expand to new geographic areas of the world? How can the customer acquisition strategy costs be lower than it currently is? How can the business soak up more market share? By this time, generated revenue should be significantly higher than before, and the business should be hiring like crazy to fulfill the needs of a vast customer base. Growth is tracked against higher and more ambitious KPIs. Additional funding, if necessary, is given. It’s also at this point that the startup has graduated to being a grown-up company, although this can also happen in earlier stages as well.

Stage 6: Endgame

The final stage. This is what founders have been dreaming about from the start. The company is performing outstandingly with increasing revenue (and profits possibly) quarter over quarter. Here, several strategies are presented: 1) continue maturing as a private company, 2) IPO, or 3) be presented with a merger or acquisition offer. The time during which these options are presented varies from company to company, and usually the founder will have already thought about what to do for a while. The best decision comes down to how the company expects to perform down the road and how it aligns with the founder’s vision. Is there opportunity for further expansion? Would an acquisition help fuel additional growth? Will taking the company public introduce new obstacles to the laid out vision? This is by no means an easy stage to be in, as any of the choices will lead to drastically different paths for the company, but it’s a problem founders have dreamed about from the very beginning.

Although this is by no means a silver bullet for understanding the path a startup takes, it paints a clearer picture of the daunting yet exciting journey a founder takes to realize their visions. This journey also usually isn’t as straight of a shot as it has been laid out here. Often, startups need to pivot multiple times to realize their true potential. But if things go right and all the ducks are lined up in a row, it can be one rewarding journey.